Bonds look attractive as growth slows and corporate sales weaken, DSP Mutual Fund’s Sahil Kapoor

Bonds look more attractive than equities in the current macro cycle, says Sahil Kapoor, Market Strategist and Head of Products at DSP Mutual Fund, which managed $23.55 billion as of September 30, 2025. He cited high real yields, slowing nominal growth, pressure on dollar inflows, and the relative value emerging in large-cap IT and broader large caps.Kapoor noted that the 10-year government bond yield has rallied to about 6.65%, providing strong real returns. India’s real yield stands near 5.4%, though he pointed out this is inflated because “the last six months consumer price index (CPI) is about 1.5%.” Even after adjusting for core inflation below 4%, he said the G-sec offers “2.5% or more in terms of real rates,” which he finds attractive.

Real gross domestic product (GDP) growth remains firm at about 8%, but nominal growth has weakened sharply. Corporate sales growth for the BSE 500 is only 7.5%, while stamp duty and government revenues are running around 10%. Kapoor highlighted how India’s nominal GDP trend has shifted over decades: “In the 2000s it was 14%, in the 2010s it shifted to 12% and in 2020s it shifted to 10%,” with recent prints falling below 9%.

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On the rupee depreciation, Kapoor said corporate India’s financial strength is a positive, with almost 90% of sectors “in the pink of health.” However, India’s balance of payments faces new challenges. Services exports, which grew 22% annually from FY01 to FY25, have slowed to 9% over the last decade. Remittances now grow in mid-single digits, and FDI/FPI flows remain weak. “Dollar inflows are struggling,” he said, and this is weighing on the rupee despite no immediate crisis.On sector preferences, Kapoor said large-cap IT stocks offer relative value. Their weight in the Nifty has fallen to around 10%, a decade low, and he believes the top few companies are “under owned.” He pointed out that Indian IT has underperformed the NASDAQ by 48% on a three-year rolling basis, creating room for allocation, though he cautioned that “these companies have not become cheap.”

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Kapoor prefers large caps over mid and small caps. Midcaps and small caps trade at 30–40 times earnings, despite earnings growth below 9% and ROEs of 14–15%. Large caps, while still rich at around 20 times, deliver healthier ROEs of 16–17%. This, he said, makes them the more reasonable option for equity exposure in the current cycle.

For the full interview, watch the accompanying video

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